Question

Multiple Choice Questions \Indicate the best answer in the space provided

1. The difference between regulations and revenue rulings is that _____ a. Revenue rulings are not limited to a given set of facts and regulations are limited b. Revenue rulings are the direct law-making powers of Congress and regulations are not c. Revenue rulings require approval by the Secretary of the Treasury; regulations do not d. Revenue rulings do not have the authority of regulations; regulations are a direct extension of the law-making powers of Congress e. Only regulations are official pronouncements of the National Office of the IRS 2. New Corporation was organized and began active business on July 1, 2017. New incurred the following expenses in connection with opening the business: Legal fees for drafting the charter $750 Legal fees for the transfer of stock 100 Sate incorporation fees 250 Printing costs for certificates 175 Fees to directors for first two meetings 300 Accounting fees to set up record keeping 400 Total $ 1,975 Assuming New Corporation adopts a calendar year for tax purposes, what is the maximum amount of organizational expenses that may be deducted on the corporation’s initial tax return?______ a. $250 b. $360 c. $400 d. $1,800 e. $1,975 3. The 100 shares of outstanding stock of Flash Corporation are owned by Barbara and Kelly, 70 and 30 shares respectively. Neither shareholder is related to the other. Each has a basis in her stock of $200 per share. During the year, Barbara sold 35 of her shares back to the corporation for $20,000. Assuming the corporation has substantial earnings and profits, Barbara’s gross income will increase by :______ a. a dividend of $20,000 b. a capital gain of $13,000 c. a dividend of $13,000 d. a capital gain of $20,000 4. During its first year of operations, K Corp. had a gross profit from operations of $180,000 and deductions of $250,000 before considering its dividend income or dividends-received deduction. K received dividends of $50,000 from a taxable domestic corporation in which K owned 4.5% of the stock. Assuming its ownership of the dividend –paying corporation’s stock is not debt financed, what is K Corp.’s net operating loss for the year? _____ a. $20,000 b. $49,000 c. $55,000 d. $65,000 e. $70,000 5. In June, 2018, the city of Houston contributed land worth $100,000 to XYZ, Inc. in order to encourage the company to establish a factory in the city. XYZ will report:_______ a. $100,000 income and will have a basis in the property of $100,000 b. no income and will have a basis in the property of $100,000 c. no income and will have a zero basis in the property d. $100,000 income and will have a zero basis in the property 6. Pennypincher Corp. had 100 shares of stock owned by the following taxpayers. Mr. Penny 30 shares Mrs. Penny (Mr. Penny’s (wife) 10 John (Penny’s son) 10 Abby (Penny’s grandmother) 10 Buddy Penny (Mr. Penny’s brother) 20 P&P Partnership (Mr., Penny is a 20% partner) 10 PPP Corporation (Mr. Penny is a 40% shareholder) 10 Total 100 shares None of Mr. Penny’s relatives nor the partnership or corporation are partners in P&P or shareholders in PPP. Under the constructive ownership rules, what percentage of Pennypincher Corp. does Mr. Penny own?_____ a. 52% b. 60% c. 62% d. 66% e. 82% 7. During the year,R,S,T and U formed a new corporation. R contributed appreciated property, S and T contributed cash and U contributed services. R, S, T and U each received 25% of the stock. Based on the facts :_____ a. R must report taxable income b. R and U must report taxable income c. U must report taxable income d. None of the parties must report taxable income 8. As part of a reorganization, S received the following in exchange for a share of stock with a $75 basis: One share of stock worth $50 and cash of $20 What is S’s recognized gain or loss on this exchange?______ a. $25 loss b. $20 gain c. $5 loss d. No gain or loss is recognized 9. ABC Corporation’s beginning balance of accumulated earnings and profits is a deficit of $100,000. It had current earnings and profits of $20,000. On March 1, the Corporation distributed $45,000 to its sole shareholder, R, who had a basis in his stock of $30,000. R will report:_____ a. no dividend income and a capital gain of $15,000 b. a dividend of $20,000 and return of capital of $25,000 c. a dividend of $20,000 and capital gain of $25,000 d. no dividend income and a capital gain of $25,000

Answer 1

1. The difference between regulations and revenue rulings is that _____

a. Revenue rulings are not limited to a given set of facts and regulations are limited

b. Revenue rulings are the direct law-making powers of Congress and regulations are not

c. Revenue rulings require approval by the Secretary of the Treasury; regulations do not

d. Revenue rulings do not have the authority of regulations; regulations are a direct extension of the law-making powers of Congress

e. Only regulations are official pronouncements of the National Office of the IRS

the correct answer is OPTION d